If you want to get out of debt with the help of a professional, you might be weighing the benefits and drawbacks of credit counselling against a consumer proposal. Here’s an overview of how credit counselling and consumer proposal are different.

What is a DMP?

A debt management plan is a consolidation programme offered by credit counselling (DMP). You must be able to repay your loans in full within five years to qualify. A debt management plan (DMP) is a voluntary repayment plan created by a non-profit credit counsellor.

Credit Counselling and DMP is suitable for people who-

  • Carry small debts if they have enough income to support repayment plus additional up to 10% – 15% credit counselling fees.
  • Have too much equity in their home to be eligible to file a consumer proposal but cannot qualify for a second mortgage or debt consolidation loan
  • Can afford to repay 100% of their debts but need a break on interest costs

What is a Consumer Proposal?

consumer proposal is a government regulated debt settlement program filed with a Licensed Insolvency Trustee.  You make an offer to repay less than you owe and can spread those payments over five years.

Consumer Proposal is suitable for people who –

  • Cannot afford to repay 100% of their debts;
  • Want to repay a portion of their debts based on what their budget will support;
  • Have large unsecured debt balances, tax debts, student debt, multiple payday loans;
  • Want to avoid bankruptcy

Credit Counselling vs Consumer Proposal?

Both methods will have an impact on your credit score. Both appear as a R7, and the notice will indicate that you are enrolled in a debt repayment plan.

A free initial debt assessment is required for both a consumer proposal and credit counselling. The main difference is that a credit counsellor will look into your finances to see if you can repay all of your bills, which is a condition of a debt management plan. A licenced insolvency trustee will examine your financial situation to see how much you can afford to repay and what you might be able to offer your creditors, as well as all of your options.

When is Credit Counselling a better option?

Credit counselling may be more appealing than submitting a consumer proposal in a few extremely limited scenarios. Credit counselling, on the other hand, is merely a bridging approach in these situations, designed to provide immediate relief while assisting in the transition to a different debt reduction solution.

If you expect to receive a large sum of money, an inheritance, or any other sort of money in the near future then, credit counselling might be an appealing short-term option in these instances, providing the client with some protection from creditors as well as a reduction in monthly payments. When the consumer’s income rises to the level expected, he or she can “drop out” of the debt management plan (or stop making payments) and pay off the outstanding debt in full as soon as possible.

Bottom Line

We can help you come to a decision and we can also help with other debt resolution strategies. To learn more about what solution would be best for your specific situation, contact us at [email protected] today for a confidential first appointment.